PHILADELPHIA-Pennsylvania Real Estate Investment Trust's net income, same store net operating income and occupancy fell during second quarter as the locally based retail REIT stepped up its redevelopment efforts. Ten of its 38 properties are in some stage of redevelopment, remerchandising or expansion.
"In a perfect world, we would space these out," Edward Glickman, president and COO, said during a conference call. But, because the REIT acquired so many properties at once, primarily through its November 2003 acquisition of Crown American, Glickman said it was necessary to step up the pace in order to bring gains. "We realize redevelopment will have a short-term negative impact on occupancy … and an interim fall-off in income." (The Crown American portfolio contained 26 shopping centers. About a half-dozen, considered non-core, have been sold. The Crown acquisition occurred in the same year PREIT also acquired six Rouse centers.)
Net income fell 31.2% to $5.5 million during the quarter, down from $8 million in the same quarter a year ago. Net operating income reached $69.5 million, up 2% from $68.1 million, while same-store net-operating income decreased by 2.4% compared with the same quarter of 2004. Occupancy in the portfolio at June 30 this year was 91.2%, compared with 92.3% the same time a year ago.
PREIT detailed a more than $200-million redevelopment investment that is under way and expected to reach completion by year-end 2007. "Our redevelopment and remerchandising activities gathered momentum during the second quarter and are continuing," said Ronald Rubin, chairman and CEO. He announced that Whole Foods will open at Plymouth Meeting Mall, calling it representative of "the creative strategies we are employing to enhance the value of our retail assets."
Barnes & Noble, Borders, Dick's Sporting Goods and Best Buy along with new restaurants are taking space throughout the portfolio, Rubin said, "creating a platform for other types of lifestyle tenants." In addition to "stepping up the pace of redevelopment," Rubin said, PREIT is also acquiring land adjacent to some existing properties in order to add new tenants.
Among the most costly and significant of the investments is the estimated $53-million phase I redevelopment at Plymouth Meeting Mall. It includes a lifestyle addition anchored by Whole Foods and up to six "upscale-themed" restaurants on outparcels. This is scheduled for completion in fourth quarter 2007.
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